# UNION OF INDIA & ORS v. M/S. BHARAT ENTERPRISE

- **Citation:** [2023] 8 S.C.R. 803
- **Court:** Supreme Court of India
- **Decided:** 2023-03-23
- **Case number:** Civil Appeal Nos. 3441-3442 of 2015
- **Bench:** K. M. Joseph, Krishna Murari, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-ors-v-m-s-bharat-enterprise-37831
- **Pages:** 25

## Headnote

Arbitration and Conciliation Act, 1996 - Arbitrator passed
an award allowing claims which were submitted after the submission
of the final bill (containing No Claims Certificate) by the
Respondent-Contractor - During the arbitration, the appellant filed
an application u/s.16 invoking clauses 65 and 65A of the Contract
which interdicted the submission of a new claim after the submission
of the final bill - Application rejected - Petition filed by the
appellant u/s.34 challenging the award, allowed - Order set aside
by High Court in appeal u/s.37 - Held: When a contractor seeks to
wriggle out of a final bill or a 'no claims due certificate' which he
has submitted, he must establish a case that a final bill or a
certificate of no further claims was the result of any of the vitiating
factors under the law - Sans such finding, the final bill would stand
- If the final bill cannot be overridden by any factors known to law
then the clauses relied upon by the appellants in this case would
operate - There was no finding by the Arbitrator that the final bill
and the no claims certificate were vitiated - The clauses in the
contract were binding not only on the parties but also on the
Arbitrator - Going against the terms of clauses 65 and 65A would
indeed render the Award illegal being contrary to the contract and,
therefore, without jurisdiction - If the clauses operate, the inevitable
result is the arbitrator could not have traveled outside of the
contractual prohibition and passed an award allowing claims
submitted after the submission of the final bill - While, the reasoning
adopted by the High Court cannot be subscribed to, it cannot also
be lost sight of that the amounts in question are fairly meagre and
the final bill was settled only after long delay of over an year - It
was apparently the long delay in the payment of the final bill amount
which led to the raising of the new claims - Perhaps, if the final bill
itself was not kept pending for such a long time, the entire dispute
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803
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[2023] 8 S.C.R.
may not have arisen at all - Impugned order set aside - Appellants
to pay Rs.3 lakhs to the respondent in full and final settlement of its
claims - Constitution of India - Art. 136.
Arbitration and Conciliation Act, 1996 - ss.16(2), (3), 34, 37
- Plea of the respondent that the order dtd. 04.03.2009 passed by
the Arbitrator u/s.16 had attained finality as the same was not
impugned u/s.37 - Held: Under s.37(2)(a), an appeal lies to the
Court from an order of the Arbitral Tribunal accepting the plea
referred to in sub-sections (2) and (3) of s.16 - This means that an
appeal can be preferred against the order of the Arbitral Tribunal
allowing the plea that the Arbitral Tribunal does not have jurisdiction
- Similar is the case with reference to an order which is rendered
appealable u/s.16(3) - Thereunder also, it is the plea that the Arbitral
Tribunal is exceeding the scope of its authority which is allowed
which is rendered appealable - In the present case, by order
dtd.04.03.2009, the Arbitral Tribunal did not allow the plea be it u/
s.16(2) or u/s.16(3) - On the other hand, the Tribunal rejected the
plea of the appellants - Therefore, no appeal could have been filed
u/s.37 against the order dtd.04.03.2009 - An order passed by the
Arbitral Tribunal rejecting the plea u/s.16(2) or 16(3) being part of
the Award itself, it is open to the parties to challenge the same when
a petition is filed u/s.34 challenging the Award.
Arbitration - Arbitrator is a creature of the parties and the
contract - As Arbitrator he cannot stray outside the contours of the
contract - He is bound to act within its confines - A disregard of
the specific provisions of the contract would incur the wrath of the
Award being imperiled.
Allowing the appeals, the Court
HELD: 1.1 The clauses which have been relied upon by
the appellants are clear and unambiguous. What they interdict is
the submission of a new c

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UNION OF INDIA & ORS.
v.
M/S. BHARAT ENTERPRISE
(Civil Appeal Nos. 3441-3442 of 2015)
MARCH 23, 2023
 [K. M. JOSEPH, KRISHNA MURARI AND
B. V. NAGARATHNA, JJ.]
Arbitration and Conciliation Act, 1996 - Arbitrator passed
an award allowing claims which were submitted after the submission
of the final bill (containing No Claims Certificate) by the
Respondent-Contractor - During the arbitration, the appellant filed
an application u/s.16 invoking clauses 65 and 65A of the Contract
which interdicted the submission of a new claim after the submission
of the final bill - Application rejected - Petition filed by the
appellant u/s.34 challenging the award, allowed - Order set aside
by High Court in appeal u/s.37 - Held: When a contractor seeks to
wriggle out of a final bill or a 'no claims due certificate' which he
has submitted, he must establish a case that a final bill or a
certificate of no further claims was the result of any of the vitiating
factors under the law - Sans such finding, the final bill would stand
- If the final bill cannot be overridden by any factors known to law
then the clauses relied upon by the appellants in this case would
operate - There was no finding by the Arbitrator that the final bill
and the no claims certificate were vitiated - The clauses in the
contract were binding not only on the parties but also on the
Arbitrator - Going against the terms of clauses 65 and 65A would
indeed render the Award illegal being contrary to the contract and,
therefore, without jurisdiction - If the clauses operate, the inevitable
result is the arbitrator could not have traveled outside of the
contractual prohibition and passed an award allowing claims
submitted after the submission of the final bill - While, the reasoning
adopted by the High Court cannot be subscribed to, it cannot also
be lost sight of that the amounts in question are fairly meagre and
the final bill was settled only after long delay of over an year - It
was apparently the long delay in the payment of the final bill amount
which led to the raising of the new claims - Perhaps, if the final bill
itself was not kept pending for such a long time, the entire dispute
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SUPREME COURT REPORTS
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may not have arisen at all - Impugned order set aside - Appellants
to pay Rs.3 lakhs to the respondent in full and final settlement of its
claims - Constitution of India - Art. 136.
Arbitration and Conciliation Act, 1996 - ss.16(2), (3), 34, 37
- Plea of the respondent that the order dtd. 04.03.2009 passed by
the Arbitrator u/s.16 had attained finality as the same was not
impugned u/s.37 - Held: Under s.37(2)(a), an appeal lies to the
Court from an order of the Arbitral Tribunal accepting the plea
referred to in sub-sections (2) and (3) of s.16 - This means that an
appeal can be preferred against the order of the Arbitral Tribunal
allowing the plea that the Arbitral Tribunal does not have jurisdiction
- Similar is the case with reference to an order which is rendered
appealable u/s.16(3) - Thereunder also, it is the plea that the Arbitral
Tribunal is exceeding the scope of its authority which is allowed
which is rendered appealable - In the present case, by order
dtd.04.03.2009, the Arbitral Tribunal did not allow the plea be it u/
s.16(2) or u/s.16(3) - On the other hand, the Tribunal rejected the
plea of the appellants - Therefore, no appeal could have been filed
u/s.37 against the order dtd.04.03.2009 - An order passed by the
Arbitral Tribunal rejecting the plea u/s.16(2) or 16(3) being part of
the Award itself, it is open to the parties to challenge the same when
a petition is filed u/s.34 challenging the Award.
Arbitration - Arbitrator is a creature of the parties and the
contract - As Arbitrator he cannot stray outside the contours of the
contract - He is bound to act within its confines - A disregard of
the specific provisions of the contract would incur the wrath of the
Award being imperiled.
Allowing the appeals, the Court
HELD: 1.1 The clauses which have been relied upon by
the appellants are clear and unambiguous. What they interdict is
the submission of a new claim after the submission of the final
bill. If there are any claims left after the submission of the final
bill, the parties have agreed that they shall stand waived. These
are the clauses which are binding not only on the parties but also
on the Arbitrator. Going against the terms of clauses 65 and 65A
would indeed render the Award vulnerable on the basis that it is
illegal being contrary to the contract and, therefore, without
jurisdiction. There may be cases where a final bill may be submitted
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and the contention is taken that the final bill was submitted under
duress. In such a case, it may be open to the claimants to urge
and the Arbitrator to find that the final bill was itself vitiated on
account of the fact that it was brought about by duress or any
other vitiating factors under law. If such an event had taken place
then that may have been sufficient to non-suit the appellants. In
other words, if under the terms of the agreement, there is an
embargo against the Arbitrator embarking upon and attempting
to find merit in any claim which is not part of the final bill, an
award so countenancing a claim would be illegal. However, on
the other hand, if the case is that the final bill itself should not be
given life as it was born out of coercion or any other vitiating
factor and the Arbitrator renders a finding on material as is
sufficient in law then the Award of the Arbitrator may not be
attacked on the ground that he travels beyond the contractual
provisions. [Paras 17, 18][822-G-H; 823-A-D]
1.2 On 13.02.2002, the respondent has indeed submitted a
final bill. It is a year thereafter on 25.02.2003, that the respondent
sent a letter inter alia urging that the final bill dated 13.02.2002
was not paid and is signed under protest. Subsequently, it would
appear that the respondent has filed an affidavit on 24.05.2003.
It is ignoring all this that notice was sent for referring the matter
to arbitration. By order dated 12.11.2007, the High Court
proceeding under Section 11 of the Act appointed an Arbitrator.
During the course of the arbitration, on 03.08.2008, the appellants
filed an application under Section 16 of the Act invoking clauses
65 and 65A of the Contract. The said application came to be
rejected on 04.03.2009. The Arbitrator has proceeded to reject
the application filed by the appellants under Section 16 on the
basis of the order dated 12.11.2007 passed by the High Court.
The Arbitrator further draws inspiration from the fact that the
application seeking modification of the order dated 12.11.2007
was dismissed on 04.12.2007. The Arbitrator further found that
the agreement entered into between the parties subsequent to
the order dated 12.11.2007 would indicate that disputes indeed
exist. What is, however, conspicuous by its absence is any finding
by the Arbitrator, that the final bill dated 13.02.2002 was the result
of duress or any other vitiating factors. [Paras 19, 20][823-E-H]
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
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1.3 An appeal lies to the Court from an order of the Arbitral
Tribunal accepting the plea referred to in sub-sections (2) and
(3) of Section 16. This means that an appeal can be preferred
against the order of the Arbitral Tribunal allowing the plea that
the Arbitral Tribunal does not have jurisdiction. Similar is the
case with reference to an order which is rendered appealable
under Section 16(3) of the Act. Thereunder also, it is the plea
that the Arbitral Tribunal is exceeding the scope of its authority
which is allowed which is rendered appealable. In this case, by
order dated 04.03.2009, the Arbitral Tribunal has not allowed
the plea be it under section 16(2) or under Section 16(3). On the
other hand, the Tribunal has rejected admittedly the plea of the
appellants. Therefore, no appeal could have been filed under
Section 37 against the order dated 04.03.2009. An order passed
by the Arbitral Tribunal rejecting the plea under Section 16(2) or
16(3) being part of the Award itself, it is open to the parties to
challenge the same when a petition is filed under Section 34 of
the Act challenging the Award. This is the scheme of the Act.
This is apparently to confine a right to appeal to those cases where
accepting a plea of a party would bring the arbitration to a halt. In
fact, the order dated 04.03.2009 has been referred to in the Award
and it has been treated as part of the Award. It is thereafter that
in a proceeding that the District Court has allowed the petition
filed under Section 34 by the appellants. It is no doubt true that
the salutary principle which has been enunciated by this Court in
Central Inland Water Transport Corporation being in accord with
constitutional principles must receive due consideration.
However, it cannot be torn out of context. More importantly, as
already noticed when a contractor seeks to wriggle out of a final
bill or a 'no claims due certificate' which he has submitted, as in
a civil Court so before the Arbitrator, he must establish a case
that a final bill or a certificate of no further claims was the result
of any of the vitiating factors under the law. Sans such finding, the
final bill would stand. If the final bill cannot be overridden by any
factors known to law then the clauses relied upon by the
appellants in this case would operate. There is no finding by the
Arbitrator that the final bill and the no claims certificate were
vitiated. The clauses in the contract were binding on the
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respondent. It cannot be departed from invoking the principle in
Central Inland Water Transport Corporation. It is not the case of
the contractor that when the contract was entered into, it was in
circumstances which attracted the principles laid down therein.
If the clauses operate, the inevitable result is the arbitrator could
not have traveled outside of the contractual prohibition and passed
an award allowing claims which were submitted after the
submission of the final bill. [Paras 22, 23, 25 and 26][824-F-H;
825-A-B; 826-A-D]
Central Inland Water Transport Corporation & Anr. v.
Brojo Nath Ganguly AIR 1986 SC 1571 : [1986] 2 SCR
278 - referred to.
1.4 While this Court cannot subscribe to the reasoning
adopted by the High Court, it cannot also be lost sight of that the
amounts in question are fairly meagre and the final bill remained
unpaid for long period of time. It was apparently the long delay in
the payment of the final bill amount which led to the raising of the
new claims. Perhaps, if the final bill itself was not kept pending
for such a long time, the entire dispute may not have arisen at all.
Having regard to all the facts and circumstances, while this Court
is inclined to set aside the impugned order, the interests of justice
would require that the respondent is paid a lumpsum amount in
full and final satisfaction of all his claims. The impugned judgment
is set aside. However, the appellants will pay a sum of Rs.3 lakhs
(Rupees Three Lakhs only) to the respondent which will be in
full and final settlement of the claims of the respondent. [Paras
28, 29][826-G-H; 827-E]
Bharat Coking Coal Ltd. v. Annapurna Construction
(2003) 8 SCC 154 : [2003] 3 Suppl. SCR 122; Union
of India and Others v. Master Construction Company
(2011) 12 SCC 349 : [2011] 5 SCR 853; Union of India
v. Parmar Construction Company (2019) 15 SCC 682 :
[2019] 5 SCR 1009; PSA SI CAL Terminate (P) Ltd. v.
Board of Trustees of V.O. Chidambranar Port Trust
Tuticorin 2021 SCC Online SC 508; Union of India
and Others v. Master Construction Company (2011) 12
SCC 349 : [2011] 5 SCR 853; National Insurance
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
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Company Limited v. Boghara Polyfab Private Limited
(2009) 1 SCC 267 : [2008] 13 SCR 638; SBP & Co. v.
Patel Engineering Ltd. and Another (2005) 8 SCC 618
: [2005] 4 Suppl. SCR 688; Tahera Khatoon (D)By LRs.
v. Salambin Mohammad (1999) 2 SCC 635 : [1999] 1
SCR 901 - referred to.
Case Law Reference
[2003] 3 Suppl. SCR 122
referred to
Para 4, 10
[2011] 5 SCR 853
referred to
Para 6
[2019] 5 SCR 1009
referred to
Para 6
[2011] 5 SCR 853
referred to
Para 11
[2008] 13 SCR 638
referred to
Para 12, 13
[2005] 4 Suppl. SCR 688
referred to
Para 14
[1986] 2 SCR 278
referred to
Para 24, 25
[1999] 1 SCR 901
referred to
Para 28
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 34413442 of 2015.
From the Judgment and Order dated 11.02.2014 and 23.04.2014
of the High Court of Punjab & Haryana at Chandigarh in FAO No. 4290
of 2013 and RA No. 66-CII of 2014 in FAO No. 4290 of 2013.
K. M. Nataraj, ASG, R. Bala, Sr. Adv., Ms. Vishakha,
Mrs. Swarupama Chaturvedi, Sharath Nambiar, Shlok Chandra, Arvind
Kumar Sharma, Advs. for the Appellants.
Ms. Praveena Gautam, Pawan Shukla, Ms. Indira Goswami, Aman
Sharma, Ms. Akanksha Tyagi, Advs. for the Respondents.
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The Judgment of the Court was delivered by
K. M. JOSEPH, J.
1. A contract was entered into between the parties for the repair
of bathrooms and other allied works on 02.07.2001. It would appear that
time was extended up to 19.01.2002. The respondent-Contractor
submitted final bill on 13.02.2002. It contained a No Claims Certificate.
The said amount claimed by the respondent apparently was not paid
immediately. The respondent it would appear made several reminders
regarding the non-payment of the final bill for a period of one year.
Following many reminders by the respondent regarding the non payment
of the final bill, according to the respondent, it sent a list of additional
claims on 25.02.2003 and in the said letter, claimed that the letter and the
Final bill should be considered as under protest. The respondent signed
affidavit dated 24.05.2003 which according to the respondent was
prepared by the appellant and which provided for the withdrawal of the
letter dated 25.02.2003. An undertaking was also got signed from the
respondent on 12.09.2003. Thereafter, respondent on 14.11.2003 revoked
the affidavit and undertaking on account of non payment of the bill and
purported to give the final notice invoking the arbitration clause contained
in the contract for the non payment of claims due. It is, thereafter, on
25.11.2003, that the appellant made payment of Rs.100358/-. This was
followed by letter dated 08.09.2004 by which the respondent sought to
invoke the arbitration clause and appointment of arbitrator. Later, on
12.11.2007, a petition was moved under Section 11(6) of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as 'Act' for brevity)
for appointment of an arbitrator. The same was allowed. A fresh
agreement for arbitration was entered into on 22.11.2007 providing for
appointment of a new Arbitrator. Suffice it to notice that a former District
and Sessions Judge came to be appointed as sole arbitrator. The appellant
filed an application under Section 16 for dismissal of the claims. The
appellant invoked clauses 65 and 65A of the contract. This application,
no doubt, was rejected on 04.03.2009 by the Arbitrator. Thereafter, the
Arbitrator entered upon the merits of the matter and passed Award dated
16.07.2009. There were a total of 10 claims. The Arbitrator disallowed
seven out of the ten claims while it allowed three claims. The claims
were allowed with rate of interest which we need not notice at this
stage. The petition filed by the appellant under Section 34 of the Act
came to be allowed by the District Judge. It is this order passed by the
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
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District Judge under Section 34 which stands overturned by the impugned
order in an appeal under Section 37 of the Act.
2. We have heard Col. R. Balasubramanium, learned senior
counsel for the appellants, and Ms. Praveena Gautam, learned counsel
for the respondent.
3. The only controversy which we are called upon to resolve is
whether the impugned order is sustainable having regard to clauses 65
and 65A of the Contract.
4. The contention of the learned senior counsel for the appellants
is that the impugned order is in the teeth of law laid down by this Court
in Bharat Coking Coal Ltd. vs. Annapurna Construction (2003) 8
SCC 154. He also points out that the said view has been followed in
PSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O.
Chidambranar Port Trust Tuticorin 2021 SCC Online SC 508. In a
nutshell, the argument is as follows:
5. He contends that the Arbitrator cannot travel outside the
boundaries of the contact. In fact, he is fully bound by the terms of the
contract. In the terms of the contract which are apposite in the context
of the dispute before us, there is a prohibition against the Contractor
supplementing the claims in the final bill by including claims which are
not found in the final bill. In the facts of this case, he would submit that
this is precisely what has happened by pointing out the final bill which
was submitted on 13.02.2002 and the claims allowed are later raised.
He would submit that the High Court was clearly in error in tiding over
this insuperable barrier in law and granting relief. The reasoning which
has weighed with the High court is sought to be brought under a cloud as
being unsustainable in the teeth of the judgments rendered by this Court
referred to hereinbefore.
6. Per contra, Ms. Praveena Gautam, learned counsel for the
respondent, lays store by the law laid down by this Court in Union of
India and Others v. Master Construction Company (2011) 12 SCC
349 and the judgment in Union of India v. Parmar Construction
Company (2019) 15 SCC 682. She would point out that there was a
long delay in signing the final bill and the Arbitrator has only awarded the
amounts which were found due. It is further contended that an attempt
made under Section 16(2) of the Act to shake the premise of the
Arbitrator's jurisdiction failed. It is pointed out that the said decision has
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not been challenged under Section 37 of the Act. It is also pointed out
that in the facts of this case, at any rate, the Court may not exercise its
jurisdiction based on an appeal generated by the State filed under Article
136 of the Constitution.
ANALYSIS
7. Clauses 65 and 65A of the Contract read as follows:
"CONDITION NO."65.
Final Bill (Applicable only to Measurement and LumpSum
Contracts).- The Final Bills shall be submitted by the Contractor
on I.A.F.W.-2262 in duplicate within three months of physical
completion of the Works to the satisfaction of the Engineer-inCharge.
It shall be accompanied by all abstracts, vouchers,etc.,
supporting it and shall be prepared in the manner prescribed
by the G.E.
No further claims shall be made by Contractor after
submission of the Final Bill and these shall be deemed to have
been waived and extinguished.
The Contractor shall be entitled to be paid the final sum
less the value of payments already made on account, subject
to the certification of the final bill by the G.E.
No charges shall be allowed to the Contractor on
account of the preparation of the final bill."
CONDITION NO."65-A.
Final Bill (Applicable only to Term Contracts). - The
Final Bill shall be submitted by the Contractor on I.A.F.W.2262
in duplicate, accompanied by all supporting abstracts, vouchers,
etc., except I.A.F.W.- 2158 and 1833 prepared in the manner
prescribed by the G.E. within three months of physical
completion of the Works to the satisfaction of the Engineer-inCharge. In respect of works orders arising out of unit
requisitions or M.E.S. inspections for maintenance and repairs,
any portion of such an order which remains uncompleted at
the date of the next subsequent requisition or inspection may,
purely to facilitate payment of completed Work and without
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
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prejudice to any other right or remedy of Government in respect
of any such delay, be deleted and the Works Order, as so
amended forthwith, billed for final payment.
No further claims shall be made by the Contractor after
submission of a Final Bill and these shall be deemed to have
been waived and extinguished. The Contractor shall be entitled
to be paid the full measured value of the Works Order, less the
value of payments made on account and of any charges
properly preferred under the Conditions of Contracts for
Government Stores, etc. supplied on repayment, subject to the
certification of the final bill by the G.E.
When fractions of a rupee occur in the totals of bills,
fractions less than half a rupee shall be disregarded and half a
rupee and over taken as a rupee.
No charges shall be allowed to the Contractor on
account of the preparation of a final bill."
8. The Arbitrator comes on the scene as a result of the agreement
between the parties. Not unnaturally, the fundamental and primary
foundation for the Arbitrator to settle the dispute is the contract between
the parties. An Arbitrator is a creature, in other words, of the parties and
the contract. It is elementary that as Arbitrator he cannot stray outside
the contours of the contract. He is bound to act within its confines. A
disregard of the specific provisions of the contract would incur the wrath
of the Award being imperiled. This position cannot be in the region of
dispute.
9. There is another scenario. This relates to a claim that there is
accord and satisfaction. On the one hand, it is sought to be rebuffed by
the case of the contractor that the accord and satisfaction was brought
about by vitiating factors which are contemplated essentially in sections
15 to 18 of the Indian Contract Act, 1872. In other words, where the
case of the contractor that a No Claim Certificate is given under duress
or coercion, this may be the subject matter of inquiry by the Arbitrator. It
may be open to the Arbitrator to find merit in the complaint of the
contractor and to reject the case of accord and satisfaction and to proceed
to examine the merits of the claim of the contractor and to award
compensation in accordance with law in a given case. These distinct
streams of cases and therefore differences in the judicial approach is
what essentially arise for our consideration.
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10. In Bharat Coking Coal Ltd. v. Annapurna Construction
(2003) 8 SCC 154, this Court considered inter alia the effect of an
Arbitrator failing to consider the relevant clauses of the contract. It is on
the said premise that the Court proceeded to hold inter alia as follows:
"Findings
9. Only because the respondent has accepted the final bill, the
same would not mean that it was not entitled to raise any claim. It
is not the case of the appellant that while accepting the final bill,
the respondent had unequivocally stated that he would not raise
any further claim. In absence of such a declaration, the respondent
cannot be held to be estopped or precluded from raising any claim.
We, therefore, do not find any merit in the said submission of Mr
Sinha.
40. However, as noticed hereinbefore, this case stands on a
different footing, namely, that the arbitrator while passing the award
in relation to some items failed and/or neglected to take into
consideration the relevant clauses of the contract, nor did he take
into consideration the relevant materials for the purpose of arriving
at a correct fact. Such an order would amount to misdirection in
law."
In the same vein is the judgment of this Court reported in PSA
SICAL Terminate (P) Ltd.1
11. On the other hand, is the decision reported in Master
Construction Company2.
12. We must notice the following facts:
Firstly, the case arose under Section 11 of the Act.
Upon completion of the work in question, the completion certificate
was issued and this was followed by the contractor furnishing a No
Claim Certificate. The final bill was signed. Thereafter, the payment of
the final bill was made within a period of little over a month. Thereafter,
it would appear that the contractor wrote to the appellant withdrawing
the No Claim Certificate. The employer (the appellant) declined to
entertain the claims on the ground that the final bill was accepted by the
1 PSA SI CAL Terminate (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust
Tuticorin 2021 SCC Online SC 508.
2 Union of India and Others v. Master Construction Company (2011) 12 SCC 349.
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
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contractor after furnishing the No Claim Certificate. It was in the context
of the said facts that this Court after an exhaustive review of earlier
case law which we must notice included the judgment of this Court
reported in National Insurance Company Limited v. Boghara Polyfab
Private Limited (2009) 1 SCC 267 went on to hold as follows:
"23. The present, in our opinion, appears to be a case falling in the
category of exception noted in Boghara Polyfab (P) Ltd. [(2009)
1 SCC 267 : (2009) 1 SCC (Civ) 177] (p. 284, para 25). As to
financial duress or coercion, nothing of this kind is established
prima facie. Mere allegation that no-claim certificates have been
obtained under financial duress and coercion, without there being
anything more to suggest that, does not lead to an arbitrable dispute.
The conduct of the contractor clearly shows that "no-claim
certificates" were given by it voluntarily; the contractor accepted
the amount voluntarily and the contract was discharged voluntarily."
13. In National Insurance Company Limited3 this Court inter
alia held as follows:
"The questions for consideration
15. In this case existence of an arbitration clause in the contract
of insurance is not in dispute. It provides that "if any dispute or
difference shall arise as to the quantum to be paid under this policy
(liability being otherwise admitted) such difference shall,
independently to all other questions be referred to the decision of
a sole arbitrator". The rival contentions give rise to the following
question for our consideration:
In what circumstances, a court will refuse to refer a dispute
relating to quantum to arbitration, when the contract specifically
provides for reference of disputes and differences relating to the
quantum to arbitration? In particular, what is the position when a
respondent in an application under Section 11 of the Act, resists
reference to arbitration on the ground that the petitioner has issued
a full and final settlement discharge voucher and the petitioner
contends that he was constrained to issue it due to coercion, undue
influence and economic compulsion?
17. The decision in Kishorilal Gupta [AIR 1959 SC 1362 : (1960)
1 SCR 493] was followed and reiterated in several decisions
including Naihati Jute Mills Ltd. v. Khyaliram Jagannath [AIR
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1968 SC 522] , Damodar Valley Corpn. v. K.K. Kar [(1974) 1
SCC 141] and Indian Drugs & Pharmaceuticals Ltd. v. Indo
Swiss Synthetics Gem Mfg. Co. Ltd. [(1996) 1 SCC 54] In
Damodar Valley Corpn. [(1974) 1 SCC 141] this Court observed
: (SCC p. 145, para 7)
"7. ... A contract is the creature of an agreement between the
parties and where the parties under the terms of the contract
agree to incorporate an arbitration clause, that clause stands apart
from the rights and obligations under that contract, as it has been
incorporated with the object of providing a machinery for the
settlement of disputes arising in relation to or in connection with
that contract. The questions of unilateral repudiation of the rights
and obligations under the contract or of a full and final settlement
of the contract relate to the performance or discharge of the
contract. Far from putting an end to the arbitration clause, they
fall within the purview of it. A repudiation by one party alone does
not terminate the contract. It takes two to end it, and hence it
follows that as the contract subsists for the determination of the
rights and obligations of the parties, the arbitration clause also
survives. This is not a case where the plea is that the contract is
void, illegal or fraudulent, etc. in which case, the entire contract
along with the arbitration clause is non est, or voidable. As the
contract is an outcome of the agreement between the parties it is
equally open to the parties thereto to agree to bring it to an end or
to treat it as if it never existed. It may also be open to the parties
to terminate the previous contract and substitute in its place a
new contract or alter the original contract in such a way that it
cannot subsist. In all these cases, since the entire contract is put
an end to, the arbitration clause, which is a part of it, also perishes
along with it."
18. Section 16 of the Act bestows upon the Arbitral Tribunal, the
competence to rule on its own jurisdiction. Sub-section (1) of the
section reads thus:
"16. Competence of Arbitral Tribunal to rule on its
jurisdiction.-(1) The Arbitral Tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for that
purpose,-
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
[K. M. JOSEPH, J.]
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(a) an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
contract; and
(b) a decision by the Arbitral Tribunal that the contract is null and
void shall not entail ipso jure the invalidity of the arbitration clause."
22. Where the intervention of the court is sought for appointment
of an Arbitral Tribunal under Section 11, the duty of the Chief
Justice or his designate is defined in SBP & Co. [(2005) 8 SCC
618] This Court identified and segregated the preliminary issues
that may arise for consideration in an application under Section 11
of the Act into three categories, that is, (i) issues which the Chief
Justice or his designate is bound to decide; (ii) issues which he
can also decide, that is, issues which he may choose to decide;
and (iii) issues which should be left to the Arbitral Tribunal to
decide.
22.1. The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached the
appropriate High Court.
(b) Whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a party to
such an agreement.
22.2. The issues (second category) which the Chief Justice/his
designate may choose to decide (or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
(b) Whether the parties have concluded the contract/transaction
by recording satisfaction of their mutual rights and obligation or
by receiving the final payment without objection.
22.3. The issues (third category) which the Chief Justice/his
designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as
for example, a matter which is reserved for final decision of a
departmental authority and excepted or excluded from arbitration).
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(ii) Merits or any claim involved in the arbitration."
14. We may notice that this is a judgment which was rendered in
the regime which was put in place by the larger Bench decision of this
Court reported in SBP & Co. v. Patel Engineering Ltd. and Another
(2005) 8 SCC 618. In fact, it is also a case arising under Section 11 of
the Act. The Court went on to deal with the question of non-arbitrability
of disputes. It categorises the cases broadly into three categories, as
can be seen from paragraphs 22.1 to 22.3. We must notice that following
the insertion of Section 11(6A) by the Arbitration and Conciliation
(Amendment) Act, 2016, with effect from 2015, there has been a change
in law but we need not be detained by the said aspect as that may not be
fully apposite for the purposes of the case. We may notice the following
statements as well in National Insurance (supra):
49. Obtaining of undated receipts-in-advance in regard to regular/
routine payments by government departments and corporate sector
is an accepted practice which has come to stay due to administrative
exigencies and accounting necessities. The reason for insisting
upon undated voucher/receipt is that as on the date of execution
of such voucher/receipt, payment is not made. The payment is
made only on a future date long after obtaining the receipt. If the
date of execution of the receipt is mentioned in the receipt and
the payment is released long thereafter, the receipt acknowledging
the amount as having been received on a much earlier date will
be absurd and meaningless. Therefore, undated receipts are taken
so that it can be used in respect of subsequent payments by
incorporating the appropriate date. But many a time, matters are
dealt with so casually that the date is not filled even when payment
is made. Be that as it may. But what is of some concern is the
routine insistence by some government departments, statutory
corporations and government companies for issue of undated "nodues certificates" or "full and final settlements vouchers"
acknowledging receipt of a sum which is smaller than the claim in
full and final settlement of all claims, as a condition precedent for
releasing even the admitted dues. Such a procedure requiring the
claimant to issue an undated receipt (acknowledging receipt of a
sum smaller than his claim) in full and final settlement, as a
condition for releasing an admitted lesser amount, is unfair, irregular
and illegal and requires to be deprecated.
UNION OF INDIA & ORS. v. M/S. BHARAT ENTERPRISE
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50. Let us consider what a civil court would have done in a case
where the defendant puts forth the defence of accord and
satisfaction on the basis of a full and final discharge voucher issued
by the plaintiff, and the plaintiff alleges that it was obtained by
fraud/coercion/undue influence and therefore not valid. It would
consider the evidence as to whether there was any fraud, coercion
or undue influence. If it found that there was none, it will accept
the voucher as being in discharge of the contract and reject the
claim without examining the claim on merits. On the other hand, if
it found that the discharge voucher had been obtained by fraud/
undue influence/coercion, it will ignore the same, examine whether
the plaintiff had made out the claim on merits and decide the
matter accordingly. The position will be the same even when there
is a provision for arbitration."
15. Before we proceed to finally rule on the issues which have
been raised, we must notice the rationale of the High Court in the
impugned judgment. We deem it appropriate to set down the following
reasoning in this regard. After referring to the clauses which we have
already extracted viz., clauses 65 and 65A, we find the following:
"The contract terms and conditions require submission of the final
bill within three months of physical completion of the works to the
satisfaction of the Engineer-in-Charge. There is no dispute that
the final bill was presented within the time prescribed. Clauses 65
and 65-A, though set a boundary on the Contractor to submit its
bill, but does not speak of the time within which the final bill is to
be discharged by the employer. Admittedly, when the dispute was
referred to Arbitration, the Contractor made further claims before
the arbitrator which were adjudicated in arbitral proceedings after
hearing the employer and the claims were by and large allowed.
If the final bill was presented on 13.2.2002, and payment of the
same was made belatedly on 25.11.2003 to the pecuniary
disadvantage of the Contractor, then it would appear not to lie in
the mouth of the Engineer-in-Charge/employer to invoke an
exclusionary clause as is found embedded in Clause 65-A. If such
a clause were to operate, then it would even take away the
Arbitrator's discretion and jurisdiction to award interest pendente
lite and future interest etc. which the law permits and such a
claim would also constitute a valid claim which can be awarded.
In any case, such a clause I am inclined to think would be opposed
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to public policy and operate unfairly, and should be understood in
the light of what the Supreme Court enunciated in Central Inland
Water Transport Corporation & Anr. vs. Brojo Nath Ganguly, AIR
1986 SC 1571, thus expanding the sphere of the law of contracts
and subjecting it to the test of reasonableness or fairness of a
clause in a contract where there is inequality of bargaining power.
Extracts from the judgment can be profitably quoted:-
"Article 14 of the Constitution guarantees to all persons equality
before the law and the equal protection of the laws. This
principle is that the Courts will not enforce and will, when called
upon to do so, strike down an unfair and unreasonable contract,
or an unfair and unreasonable clause in a contract entered into
between parties who are not equal in bargaining power. The
above principle will apply where the inequality of bargaining
power is the result of the great disparity in the economic
strength of the contracting parties. It will apply where the
inequality is the result of circumstances, whether of the creating
of the parties or not. It will apply to situations in which the
weaker party is in a position in which he can obtain goods or
services or means of livelihood only upon the terms imposed
by the stronger party or go without them. It will also apply
where a man has no choice, or rather no meaningful choice,
but to give his assent to a contract or to sign on the dotted line
in a prescribed or standard form or to accept a set of rules as
part of the contract, however, unfair unreasonable or
unconsionable a clause in that contract or form or rules may
be. This principle will not apply when the bargaining power of
the contracting parties is equal or almost equal. mis principle
may not apply where both parties are businessmen and the
contract is a commercial transaction. In today's complex world
of giant corporations with their vast infrastructural organisations
and with the State through its instrumentalities and agencies
entering into almost every branch of industry and commerce,
there can be myriad situations which result in unfair and
unreasonable bargains between parties possessing wholly
disproportionate and unequal bargaining power. The Court must
judge each case on its own facts and circumstances when
called upon to do so by a party under section 31(1) of the
Specific Relief Act, 1963."
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Then further;
"In the vast majority of cases, however, such contracts with
unconscionable term are entered into by the weaker party under
pressure of circumstances, generally economic, which results
in inequality of bargaining power, Such contracts will not fall
within the four corners of the definition of "undue influence"
as defined by section 16(1) of the Indian Contract Act. The
majority of such contracts are in a standard or prescribed form
or consist of a set of rules. They are not contracts between
individuals containing terms meant for those individuals alone.
Contracts in prescribed or standard forms or which embody a
set of rules as part of the contract are entered into by the party
with superior bargaining power with a large number of persons
who have far less bargaining power or no bargaining power at
all.